Compressed air systems are utilized in a wide variety of applications and industries ranging from automobile repair and dry cleaning to manufacturing and construction. In areas where relative humidity is high, water build-up in air lines can cause severe problems. Water in the air lines can shorten the life of air tools, clump media in sandblasting operations, ruin delicate parts during air jet cleaning processes, damage air-driven components within machinery or produce inferior painted surfaces. There are a number of devices on the market intended to remove free moisture from compressed air streams. The bulk of these devices are very expensive, large, exhibit environmental concerns, are maintenance-intensive and operationally sensitive. Therefore, a dryer that is not burdened by these traits would be an attractive solution to the problem of free moisture in the air stream for many compressed air users. The majority of compressors in operation today are of a two-stage design that produces a discharge pressure that is too high to be properly utilized in day-to-day operations. Therefore, these compressors must either be used at a reduced output pressure or incorporate a pressure reducing valve, or regulator, on their output. Reducing the output pressure is undesirable because these compressors produce their highest efficiency at high pressures. Therefore, the use of a pressure reducing regulator is the most desirable configuration for these compressors. During the pressure reduction process, the Joule-Thompson effect comes into play forcing the expanding air to cool, which then condenses out any entrained moisture in the form of a fine fog. The entrained fog is carried into the distribution system and eventually finds its way to the pneumatic applications, where it can effect a great deal of damage on the components. Additionally, the entrained fog will collect in the pipes of the distribution system where it will cause severe internal corrosion. Therefore, a dryer that incorporates an integral pressure reducing regulator that is coupled with a specially designed element for consolidating the entrained moisture, which can take advantage of the Joule-Thompson effect, would be a rather attractive solution to the problem of free moisture in the air stream for many compressed air users.